After the Stimulus, Big Shifts in Medicaid Funds

On July 1, all 50 states lost the additional Medicaid funds they’d been getting from the federal stimulus program. The extra aid totaled $100 billion over three years and helped states pay for the higher costs that go along with higher enrollments during a weak economy. 

With the national unemployment rate seemingly stuck above 9 percent, those costs haven’t gone away. That’s part of why this has been a tough budget year in nearly every state. 

But the drop from the stimulus cliff was steeper for some states than others, according to a recent report by Federal Funds Information for States . Hardest hit was Hawaii , which saw a 16 percent drop in funding. Now, the feds are picking up about 52 percent of the state’s .3 billion Medicaid program.

The next-most adversely affected were Louisiana (13 percent), Washington State (13 percent), Alaska (12 percent) and Nevada (12 percent). The states with the smallest adjustments were Kentucky and Alabama , at 9 percent each. The variation is primarily due to a disproportionate share of stimulus money going to states with big increases in their unemployment rates.

But another change has occurred, one that also impacts federal funding for states — as well as the distance from the top of the cliff and the bottom. The normal federal matching rates for Medicaid also have shifted. Those rates vary from state to state, ranging from 50 percent of total spending to 83 percent, depending on a state’s income. The share for each state is adjusted each year to reflect changes in income. That didn’t happen during the stimulus period. 

Now, each state will return to reality. Their new federal Medicaid share is calculated to reflect per-capita income changes over the past three years. The changes can result in tens of millions of dollars shifting from one state to another. 

States where per-capita incomes went down compared to the rest of the country got the biggest increase in federal help. Those include Nevada (6 percent), Michigan (6 percent), Delaware (4 percent), Indiana (3 percent) and Tennessee (2 percent).  States where incomes rose relative to the rest of the country saw a drop in their federal share. Those include North Dakota (-8 percent), Hawaii (-5 percent), South Dakota (-3 percent), Kansas (-3 percent) and Nebraska (-3 percent). 

In the fall, the federal government will publish new matching rates for 2013. Those  are expected to show even more significant changes in Medicaid funding percentages because it will be the first year that the 2010 census results are used. Adding further uncertainty are federal budget deficit talks, which have included changes in Medicaid funding formulas designed to cut federal costs. If approved, any new formula would likely result in states footing a larger share of the bill.